Even before the current crisis caused by the global Covid-19 pandemic, the investment environment was already challenging.

Sovereign wealth funds and other long-term investors were increasingly struggling to find pockets of value.

As a result, our data shows that the number of publicly disclosed direct investments1 made by sovereign wealth funds has stagnated since 2017, while the amount of equity invested has dropped by over a third from $54.3 billion in 2017 to $35 billion in 2019.

Chart 1.1. SWF Direct Investments byValue ($Billion) and Number of Deals20152016201720182019$0bn$10bn$20bn$30bn$40bn$50bn$60bn$70bn$80bn$90bnEquity ($Billions)

Not only did overall investment activity by sovereign wealth funds decline, but the investments themselves have also become smaller.

As illustrated in chart 1.2, for the last three years, the median2 value of sovereign wealth funds’ investments in private equity was $25 million, less than half of the median value in 2016.

Even in real assets, the median equity invested has reached all times lows: only $50 million in infrastructure and $100 million in real estate.

We believe that we have identified four primary factors that explain these trends.

Geopolitical Tensions

The rise of nationalism across the globe since 2016 is a well-documented phenomenon.

Most noticeably, in 2019, its impact was manifested in the trade dispute between China and the United States. However, there were also strained trade relations between European Union and the United Kingdom, over its decision to take a hard stance on negotiating Brexit.

But this move has not only been confined to developed markets. In 2020, India has also amended foreign portfolio investors (FPI) regulations to restrict their participation in the equity of Indian companies.3

China and the USA

For sovereign wealth funds, this investment environment has seen major cross-border investments being subjected to greater regulatory scrutiny. It is important to note that concerns about sovereign wealth fund investments do not have to be sparked by their behaviour. In 2006-7 it was the Dubai Ports World controversy that pushed foreign direct investment (FDI) up the US political agenda and catapulted the newly named category of sovereign wealth funds into public consciousness.

Government-linked investors like sovereign wealth funds that acquire assets overseas have to balance investing without getting caught up in political disputes. 

Recently, the most high-profile case of this type of reaction was the ban on Huawei, China’s leading telecoms firm, being involved in the construction of 5G networks in several countries including the US, Australia and New Zealand. Government-linked investors like sovereign wealth funds that acquire assets overseas have to balance investing without getting caught up in political disputes. 

For example, over the past three to four years, some SWFs have reported challenges with the Committee on Foreign Investment in the United States (CFIUS) process. In closed-door events held by IFSWF, we have held several discussions on this topic where members have noted the increasing scrutiny of US regulators in approving new investments.

Although, to date, sovereign wealth funds have largely avoided being caught in high-profile disputes, we hear substantial anecdotal evidence that US investors have been less welcoming of some SWF money during recent periods of heightened political sensitivity.

These tensions have had their greatest impact on sovereign wealth fund investment in hard assets

The Covid-19 pandemic is also likely to reinforce this trend. The lack of a globally coordinated response to managing the disease’s spread as well as the disruption to the global economy and supply chains will likely spark a rise in protectionism4 and a decentralisation of manufacturing capacity, with companies looking to bring production home.5

These tensions have had their greatest impact on sovereign wealth fund investment in hard assets, such as real estate and infrastructure, which can be considered strategic by governments.

Such sensitivities have become evident during the Covid-19 crisis. For example, on 17 March 2020, the Spanish government suspended the deregulation of FDI in Spain, specifically in certain sectors, including infrastructure and telecoms, that it considers to affect public policy, public security and public health.

“The trouble is once countries start making it harder for some sovereign wealth funds, you can all be bundled into the same category."
Peter Costello, Chairman, Future Fund, October 2018

Our data shows that sovereign wealth fund investment in hard assets has declined from over half of their annual total investment value in 2015 to approximately a third in 2019.

Sovereign wealth funds from all over the world, regardless of political tensions, are feeling these pressures. For example, in October 2018, Peter Costello, the Chairman of Australia’s Future Fund, told the Australian Financial Review, “The trouble is once countries start making it harder for some sovereign wealth funds, you can all be bundled into the same category. If foreign investment restrictions become tighter, they can sweep up a whole lot of people.”6

Chart 1.3: SWF Direct Investments by AssetClass201520162017201820190%10%20%30%40%50%60%70%80%90%100%% of Total Equity

Slowing Global Economic Growth

container ship

Even before the Covid-19 pandemic, global economic growth was slowing.

Trade policy uncertainty, geopolitical tensions weighed on global economic activity in the second half of 2019. Intensifying social unrest in several countries posed new challenges, as did disasters resulting from climate-change-related weather events – hurricanes in the Caribbean, drought and bushfires in Australia, floods in eastern Africa, and drought in southern Africa.

However, the biggest corrections were in major emerging markets. In India, domestic demand slowed sharply as credit growth declined due to stress in the non-bank financial sector, resulting in the economy expanding at a rate of 4.8%, down from 6.8% in 2018. China’s economy also only grew by 6.1%, its slowest rate in decades due to the continuing rebalancing of the economy away from production to consumption.7  

As a result, figures from the International Monetary Fund showed that the global economy only grew 2.9% in 2019, down from a rate of 3.6% in 20188, while the value of global trade declined by around 3% according to the World Trade Organisation. 9

Less Liquid Stock Markets

We noted in last year’s annual review that public markets globally were becoming less liquid, providing fewer investment opportunities and encouraging institutional investors into the private markets10. This movement slowed slightly in 2019. Record stock buybacks, incentivised by tax reforms in the US, have been one phenomenon that has been responsible for seeing stock markets shrink.

As the benefits of those tax reforms waned, share repurchases in 2019 did decline from their historic high of the previous year. S&P 500 buybacks were valued at $728.7 billion, down 9.6% from $806.4 billion set in 201811. However, companies buying their own shares remained a “dominant” source of stock-market demand, according to Goldman Sachs12

A major source of stock-market liquidity, initial public offerings (IPOs), also continued to slow. In 2019, global IPO activity fell by 20% to 1,242 and capital raised fell 8% to $206.1 billion, according to law firm Baker McKenzie13. This trend, precipitated by young companies electing to remain private for longer14, was exacerbated by geopolitical tensions combined with overoptimistic valuations on several high-profile listings, including the parent company of co-working space provider WeWork and talent agency behemoth Endeavor, which both failed to get off the ground for a range of reasons.

In 2019, global IPO activity fell by 20% to 1,242 and capital raised fell 8% to $206.1 billion

Nevertheless, sovereign wealth funds are still interested in participating in listed equity markets. When they were offered the opportunity to back the IPOs of high-growth companies, primarily in software and biotech, they continued to do so. These types of companies have primarily listed in the US and Hong Kong.

As a result, the 20 cases of sovereign wealth funds acting as anchor investors for IPOs in 2019 (down from a recent peak 38 in 2017, and largely in line with the 17 we recorded in 2018), were split equally between the US and Asia. For example, high-profile US tech startups such as Uber Technologies, Lyft, Datadog, and Slack Technologies15, all attracted SWF investments, as did hot Chinese biotech companies: Shanghai Henlius Biotech, Hansoh Pharmaceutical, and Venus Medtech.

S&P 500 buybacks

2019: $729bn
2018: $806bn
Chart 1.4. SWF Anchor IPO Investments in the last 5 years20152016201720182019010203040Number of Deals

Dry Powder and the Domino Effect on Valuations

Chart 1.5. SWF Direct Investments (as a %of total number of deals, excluding realassets) in Private and Public Markets201520162017201820190%10%20%30%40%50%60%70%80%90%100%% of Total Deals

Over the past five years or more, sovereign wealth funds, and other asset owners, have been increasing their allocations to private equity, a trend that we noted last year had picked up pace16.

As illustrated, over the past five years sovereign wealth funds have greatly increased their allocations to private assets.

Our analysis shows that – even excluding real assets that are generally unlisted – in 2019, sovereign wealth funds sourced almost two-thirds of their deals from private markets, compared to 50% five years ago.

The move towards unlisted assets, not just by sovereign wealth funds, but also other institutional investors such as pension funds and endowments17, has resulted in committed capital to private equity funds reaching an all-time high of $2.5 trillion in December 2019 according to Bain Capital. Fundraising also continued apace. In 2019 alone, investors poured $894 billion into private capital, including private equity, real estate, infrastructure and natural resources.18

As a result of so much capital chasing investments and an abundance of available cheap debt, private-equity valuations set all-time highs in the US and remained near record levels in Europe. 

Such high valuations for mature private companies have encouraged those sovereign wealth funds with established private-equity programmes to look for earlier-stage investments19, since 2017 particularly in sectors like healthcare and technology, where more companies are looking for capital and sovereign wealth funds perceive there may be more value. 

Naturally, as sovereign wealth funds invest at the earlier stage of companies’ lifecycle, they have to reduce the size of cheque they write, reducing the average investment value we have recorded. 

value price scales

Equally, high valuations in private markets has also encouraged some sovereign wealth funds to sell investments in assets such as core real estate in major cities and infrastructure, believing the prices of some assets had peaked.

For example, both the Abu Dhabi Investment Authority and the Future Fund sold their stakes in London’s Gatwick Airport in December 2018, while the Kuwait Investment Authority’s Wren House Infrastructure arm sold its stake in Spanish utility Viesgo in March 2020, having already divested part of the company’s portfolio to Repsol for €750 million in June 201821.


  1. See About our data for the definition of “direct investments”.
  2. For reference the average amount of equity invested per deal was $100.2 million in 2019, down from $149.9 million in 2016. Both average and median $ equity invested are calculated excluding the null values. We used the median rather than the average, to temper the influence of very large deals as outliers and all the transactions with a null
    or missing value. In this case the median provides a much more representative number for our sample.
  3. Securities and Exchange Board of India, SEBI (Foreign Portfolio Investors) (Amendment) Regulations, 2020
  4. “Covid-19 is bringing out protectionist instincts”, Financial Times, 19 April 2020
  5. Jesse Lin, Christian Lanng, Here's how global supply chains will change after COVID-19, 6 May 2020
  6. Peter Costello warns the 'investment climate will be harder to produce returns', Australian Financial Review, 18 October 2018
  7. World Economic Outlook Update, January 2020: Tentative Stabilization, Sluggish Recovery?
  8. Ibid.
  9. WTO Data
  10. Private Markets Direct Investments Bounce Back, International Forum of Sovereign Wealth Funds Annual Review 2018
  11. S&P 500 Buybacks up 3.2% in Q4 2019; Full Year 2019 Down 9.6% From Record 2018, as Companies Brace for a More Volatile 2020

  12. Buybacks are the ‘dominant’ source of stock-market demand, and they are fading fast: Goldman Sachs, MarketWatch, 6 November 2019 

  13.  Baker McKenzie, Cross-Border IPO Index 2019: Global IPO Market Contracts Under Political Uncertainty | Insight 

  14. Private Markets Direct Investments Bounce Back, International Forum of Sovereign Wealth Funds Annual Review 2018

  15. Slack Technologies’ shares started trading on the New York stock exchange on 20 June 2019, via a direct listing rather than the traditional initial public offering route.

  16. International Forum of Sovereign Wealth Funds, New challenges, private markets Sovereign wealth funds' changing investment strategies, November 2016; Private Markets Direct Investments Bounce Back, International Forum of Sovereign Wealth Funds Annual Review 2018 

  17. Harvard Business School, The Rise of the Asset Owner-Investor in Private Markets

  18.  Bain and Company, Global Private Equity Report 2020 

  19. Acceleration of Early-Stage Investments, International Forum of Sovereign Wealth Funds Annual Review 2018 

  20. For a classification of venture capital financing, we used the most common grouping: Early stage (series A and B), growth capital (series C and D), late stage (series E and F), pre-IPO (series G and H). Please see National Venture Capital Association accessible at: https://nvca.org/

  21. Macquarie Infrastructure and Real Assets and Wren House divest part of Viesgo's portfolio to Repsol for €750 million; Macquarie Infrastructure and Real Assets Agrees to Acquire Additional Stake in Viesgo from Wren House Infrastructure